A Look At The Stock Market Crash of 1929; Freeze Watch?

NAM 12hr 925mb 1029 00Z

NWS Forecast AM Temps 1029

Freeze Watch? You know what, I looked all over the place at NOAA and National Weather Service glossaries and found no listing for a Freeze Watch. Matt Milosevich said he never heard of it before either. But, then again, he went to the University of Oklahoma. Jay Cardosi said he’s heard of it before and agreed with my assessment that it probably means that a freeze is possible but not necessarily imminent. He said typically they put out the watch 48 hours out and then either change it to a warning or cancel it. What I showed previously for the wind forecast aloft. Above, you see the NAM 12Z 10.29.08 925mb map. While those winds are running right along at near 30 kts at about 2500 feet, ours at the surface will be still in the 7-15 mph range. Because of the breeze and low dewpoints, we won’t have any frost. We will mix down some warmer air from aloft so what might be a low in the mid 20’s area wide on a calm, clear night will be upper 20’s or mainly low 30’s. (see explainer previous post) So, the Freeze Watch got changed to a more conventional Freeze Warming. The airport, where no one lives, probably won’t be below freezing nor extreme southern areas…but it will still be cold. Frost will be possible on Thursday morning and by Halloween…look for a high near 70.

Brooklyn Newspaper Oct 30 1929

1929 Wall Street Panic

On This Date in History: On this date in 1929, the stock market crashed. The Dow had been quite

Dow Chart Before & After 1929 Crash

volatile before suffering a sharp drop on Oct 24 and then again on Oct 28. On Tuesday October 29, 1929, a day that became known as “Black Tuesday,” The market collapsed. 16 million shares of stock were sold as prices tumbled with a loss estimated at $9 Billion, which was a lot of money back then. The decline continued and by mid-November losses totaled some $30 Billion. (Video from 1929)

Fortunes were lost and eventually jobs were lost

Panic at the Exchange 1929

and then there was the Depression that followed. Many historians of economics suggest that it was not the stock market crash that caused the depression, but rather governmental action and reaction that caused the economic malaise. Congress passed the Smoot-Hawley Act that raised tarriffs on 3200 imports by 60% in late September. On October 21, Congress defeated an attempt to exempt agricultural goods. Three days later, the market began its decline. President Hoover could have vetoed the measure but instead signed it 7 months after its passage and the resulting market crash. Prices on many good rose. Taxes were also increased. This is why you hear politicians today say that now is not the time to raise taxes and not the time to be closing the global market place.

Why would they say this now? We are in a stock market decline with shares falling some 40% from the all time highs of a year ago. I have compared this with the panic of 1907.(Click Here) However, I must say that history is not prescriptive and what happened in the past does not necessarily repeat itself. The times and conditions are different on a number of levels.

Dow: A Long Recovery

Nevertheless, if you must look at history as a guide, you need to know the truth. In general if you bought stock at the highs in 1929, you did not see your portfolio back to even for 25 years. Some individual stocks took longer than that. The speculation running rampant in the “Roaring 20’s” was probably more comparable to the run up in the market in the 1990’s than this past run. The decline in the late 1920’s into the 1930’s was about 87%. An 87% of a drop from the Oct 2007 highs would be about 1700 which would take us back to the 1980’s. This latest fall took us back to numbers we had in late 2001 and early 2002. So, we’ve gone up and down and up and down again in the past 10 years, which is not comparable to the 1920’s, 30’s, 40’s and 50’s.

Anyway, with all that in mind, I offer you this. It is an excerpt of a letter written by Earnest Elmo Caulkins to

Caulkins: Confident Investor

the New York Times on this date in 1929, the day after “Black Tuesday.” Caulkins was a successful advertising executive who had a rather extraordinary life story.(Click Here) He was deaf but was an achiever who did not let his disability get in his way. It’s really remarkable when you consider that he did this in the late 19th and early 20th century when it was particularly difficult for deaf individuals living in a hearing world.

He began by saying “I have a feeling that fewer persons are affected by the stock market drop than one would infer from the figures, just as fewer persons were affected by the previous rises.” That can be said today but not entirely. Today, millions of Americans have pension plans and 401K plans that are affected. For instance, I have a 401K but its decline does not affect my standard of living today.

He goes on to say that one day, the men on the market decide his AT&T stock is worth $310 and a few weeks later $232. He bought the stock at $98, so he is disappointed but he doesn’t consider it a loss. First off, he points out that its still more than twice as much as what he paid for it. So, to suggest that lumping he and other together and say that millions have been “lost” is a false implication. Compared to the previous day its a loss but compared to a few weeks before, he’s even and compared to prior to that, its a gain. I think what he is pointing to is the only difference is time. Millions of shares were NOT traded and for those who did not trade, what was a great position of happiness and wealth in September was being characterized as a position of gloom and despair in late October.

He went on to review his portfolio and said that his previous high profits were on paper and his recent losses were on paper and reasoned that the two cancel each other out. He concluded with a story of a farmer who told his friend that Mr. Stebbins offered him $200 for his horse. The friend replied, “But Stebbins ain’t got $200.” The farmer answered, “yes, but ain’t it a good offer?”

Much of what Caulkins says here is true today. The Dow at the end of Jan 1980 was at 874.40. Oct 28, 2008 it closed at over 9,000. Yet, in October 2007, the Dow hit 14,000. When I worked at Merrill Lynch, my office mate, Martin Feinberg, used to say “Stocks go up and stocks go down.” They do. The question here is time. We like it when stocks go up quickly but then get upset when they fall quickly, as if one is normal and the other is a crisis when, in fact, both signal volatility.

I have always reasoned that it is not wise to “play the market.” Over the past 30 years, people have entered the stock market like they are going into Churchill Downs to bet on the ponies. Men like Caulkins entered as investors.

Lombardi:Inspirational Quotes

I guess what I am saying is that it’s silly for people to claim this is 1929 all over again. I took a look at 1907 but I never suggested that this was 1907 all over again. That was then. This is now. The future has yet to be written. It is often said that it’s not whether we face adversity but how we react to adversity that counts. I’ve read a quote from Vince Lombardi(inspirational quotes) (origin probably elsewhere) that said “the greatest accomplishment is not in never failing, but rising again after you fail.” The past is the past and its how we conduct our future, whether it be governmental policy or personal actions, that really counts. With global intervention, coordination and new policies, this may be the beginning of a turnaround and, then again, it may be the beginning of a long fall. Who knows for certain? But, I do know that nothing lasts forever either way. If you believe that the sun rises every day and will again on this nation, this economy and the global economy, then invest in the future. If you do not, then stay out of the market. In my view, its as simple as that. Mr Caulkins overcame his disability and had great confidence in the future. You need to ask yourself if you have the same ideals.

8 Responses

Nice post, Mr. Symon. Waxing a bit philosophical at the end, I see. I’ve always likened playing the stock market to gambling. Common stocks have no real intrinsic value beyond the dividends which are usually a small percentage of the “value” of the stock. The only value that stocks have in reality is what others esteem them to have. So, in effect, owning stock is really just gambling that the price that someone will give you later for the stock will be higher than what you paid for it originally. I really liked the $200 horse analogy. Very clever.

Eric - October 29, 2008 at 3:04 pm

Of course there is poetry in the conclusion. I mean you can get a rundown on the crash anywhere, but where else can you get Vince Lombardi involved. I discovered the letter to which you refer but was unable to completely copy it due to my fear of copyright infringement. See, much of the material I come by is not found on the internet initially and often I can’t find anything on the net in the area in which I write. Besides, the net is a not a very good place as a source of information so I use it as supportive stuff..photos and such. When I can find a reputable link, I’ll use it.

As for the philosophical view of the market, I’ve thought that you could put that to currency as well. When we were on the gold standard, supposedly the dollars in circulation were backed by the value of gold in the treasury. Now that we aren’t on the gold standard, I have yet to figure out a quantifiable, substantive way to value the currency. It’s quite odd and doesn’t seem to be based on anything. But, commodities in general seem to tell us the value. When the value of the dollar fell, the price of oil went up. The dollar has been rising as of late and now oil is falling. While the currency exchange rate is not the sole factor, I do think that it is perhaps a major factor in oil prices, thus the value of the dollar may not be backed by gold in the treasury but has a value determined by global commodities.

symonsezwlky - October 29, 2008 at 4:48 pm

Highly informative topic on 1929 Dow crash. A good post for present day traders

It’s important to remember that history is not prescriptive. I think its most helpful in just knowing that this current situation is not necessarily unprecedented and I think this current situation just illustrates that bad things can happen in capital markets, regulations or not. I think the public has been lulled into a sense of security and this little episode just reminds us that, if you want a guarantee, get a toaster.

symonsezwlky - January 6, 2009 at 6:15 pm

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cheston - February 10, 2010 at 9:23 am

No, you are first and I have not only viewed this on safari, but I’ve also created content using it.

symonsezwlky - February 10, 2010 at 1:22 pm

I am absolutely satisfy about your historical information,

Thanks
Alauddin, SEU, Dhaka-Bangladesh
23rd Batch MBA

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